Laxmi Capital News
Power producers concerned about local taxes

 IndependentPower Producers’ Association Nepal (IPPAN) has asked the local government unitsnot to impose any new tax on the hydropower projects before the governmentformulated clear laws of taxation on this sector in the federal setup.

Theassociation has said that any new tax, in addition to the royalty that they arepaying at the moment, would only complicate things before there was a cleargovernment policy. 

Theappeal from the professional body of hydropower plant developers came after alocal unit in Dolakha decided to levy Rs 1 million from Nepal Developer Limited(Charnawati Hydropower Project). 

Thevillage council of Shailung Rural Municipality had decided to impose‘electricity tax’ on the company, on February 1.

IPPANin a press statement on Monday has asked not to overburden the hydropowercompanies until the government came up with clear law in this matter. 

Currentlyhydropower plants are paying an average 10 percent of the total revenue inroyalty every year and additional 15 percent of tax to the government.

Twenty-fivepercent of such royalty is allotted for the local levels, according to the law.But the distribution of such royalty has not started yet, even after thecountry has embraced federal set up.

IPPAN’spresident Shailendra Guragain said that they are already paying royalty worthup to 25 percent of the total annual revenue during the license period of 35years. 

“Theyshould not impose such tax until the law is endorsed by the central governmenton distribution of the royalty,” added Guragain.

Spokespersonfor the Ministry of Energy, Dinesh Ghimire, said that the local levels canimpose tax by making laws but not arbitrarily as Shailung Rural Municipalityhas done. 

“Suchlaws cannot be contradictory to the taxation law that the central government isgoing to make,” added Ghimire.

Asper the existing system, the district development committees (DDC) of theregion where a hydroelectric project is situated receives 50 percent of theroyalty, which the DDC should spend mainly on rural electrification, whereasthe remaining 50 percent goes to the government treasury. The hydropower plantsare now paying royalty to the government in two categories. They pay twopercent of the average tariff per unit (per kilowatt hour) and Rs 100 per kilowattinstalled capacity per year for the first 15 years of generation (forcommercial purpose). Thereafter, the rate of royalty is set at 10 percent ofaverage tariff per unit (per kilowatt hour) and Rs 1,000 for each installedkilowatt per year. 

Accordingto previous royalty distribution mechanism, the plants’ home districts got 12percent of the royalty allocated for the region and the remaining royalty wasdistributed equally among other districts in the region. 

Butthe government has not yet made any royalty distribution modality except forthe Inter-Governmental Financial management Act 2017 that was endorsed lastyear. It has allocated royalty percentage among three tiers of the governments,collected from the use of natural resource. The law says provinces and locallevels each get 25 percent, whereas the remaining 50 percent goes to thecentral government’s treasury.

Hydropoweris not the only sector where confusion of tax collection has emerged betweenthe central and local levels. It has also been seen in other sectors such astourism. 

Investorsare worried of further confrontation with the local levels where they areoperating. The Federation of Nepalese Chambers of Commerce and Industry hasrepeatedly asked the government to clear the ambiguities surrounding taxation.


Source:Myrepublica 28th February 2018

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